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What are the Articles of Association for companies in Thailand
30/11/2022
Articles of Association are an essential aspect of company incorporation. Articles of Association determine how a company will operate and undertake specific procedures. The content contained in a company’s Articles of Associate is determined at the company’s statutory meeting and can be revised later with Shareholders’ meetings.
In this article, we take a look at some of the key provisions contained within a typical set of Articles of Association.
Key points
- Articles of Association determine how a company will operate and undertake specific procedures.
- In Thailand, private limited companies can either create and adopt their own Articles of Association or implement the relevant provisions contained within the Thai Civil and Commercial Code.
- Provisions specified in the AoA are enforceable against third parties (unlike Shareholder Agreements that is private agreements between the shareholders).
What are the articles of association?
Articles of Association are a document that specifies the regulations for a company’s operations and company’s purpose. Articles of Association also establish the procedure for the completion of tasks within the organization, for example, how to appoint directors and the handling of financial records.
Articles of Association must be recorded at the Ministry of Commerce. It is also important to note that the Ministry of Commerce will review all the provisions of all submitted Articles of Association. This is done to ensure all the provisions are compatible with the Thai Civil and Commercial Code. Should any provisions be found to go against the Civil and Commercial Code, they will be rejected.
Articles of Association are not a mandatory requirement. Should a company opt against implementing its own Articles of Association, the company will then be governed by the provisions of the Thai Civil and Commercial Code.
It is entirely possible for a company to not implement any Articles of Association during the initial incorporation stages, but decide to implement some at a later date. Should a company wish to do so, they will need to have the Articles of Association approved during a Shareholder’s meeting or EGM. Should a company wish to amend its Articles of Association, the changes will again have to be approved at a Shareholder’s meeting or EGM.
Finally, the provisions specified in the Articles of Association are enforceable against third parties (unlike Shareholder Agreements that is private agreements between the shareholders). This offers shareholders an added layer of protection and enforcement rights. Should an action be taken that goes against the Articles of Association, it will not be able to proceed.
Provisions included in the articles of association
In Thailand, private limited companies can either create and adopt their own Articles of Association or implement the relevant provisions contained within the Thai Civil and Commercial Code.
Articles of Association usually include, but are not limited to the following chapters:
Chapter 1: General provisions
Chapter 2: Shares and shareholders
Chapter 3: Directors
Chapter 4: Shareholders’ meeting
Chapter 5: Balance sheet
Chapter 6: Dividend and reserve fund
Chapter 1: General provisions
Chapter 1 of a company’s Articles of Association is made up of the provisions contained in the Thai Civil and Commercial Code relating to private limited companies. These provisions will apply in all circumstances.
As per Thai law, any amendments or modifications to be made to a company’s Articles of Association must be approved by a shareholders’ meeting.
Chapter 2: Shares and shareholders
Chapter 2 of a typical set of Articles of Association usually relates to the shares and shareholders. The details contained within this chapter can be made up of the following information:
- Details for the types of shares must be entered into the name certificate, and the shares must be fully paid up.
- Every share certificate of shares must be signed by at least one director and contain the company seal.
- Any transfer of shares must be made in writing and signed by the transferor, transferee, and certified by at least one witness.
- The transfer of shares will only be valid when the company registers the transfer.
- The company cannot own its own shares or take them in pledge.
Chapter 3: Directors
Typically Chapter 3 of the Articles of Association relates to the company directors. The directors of a company are appointed by the shareholders to manage the company’s day-to-day affairs.
Examples of typical clauses include:
- Key details such as the number and remuneration of the directors at the company will be established by the general meeting of shareholders.
- Should a vacancy in the board of directors arise, the vacancy must be filled up by a director appointed by the board of directors.
- Any replacement director appointed shall retain their position for the same duration only as the director to the replaced was entitled.
- The director may fix the quorum necessary for business transactions at their meetings. Unless stated otherwise, a quorum will be set at three (when the number of directors exceeds three).
- The board of directors is responsible for the company’s management.
Chapter 4: Shareholders’ meeting
Chapter 4 refers to Shareholders’ meetings. A shareholders’ meeting is a meeting called for and held by the shareholders of a company. Such meetings are used to discuss the arrangements of the company or to vote in the election of board members.
Typical clauses include:
- The general meeting of shareholders will usually be held within six months after the company registration and held every following 12 months. This meeting is also known as an ordinary meeting. Other types of general meetings are called extraordinary meetings.
- Directors may request an extraordinary meeting for special resolutions or in response to a request made in writing by shareholders holding (who hold no less than one-fifth of the shares).
- Shareholders who are unable to physically attend the meeting can vote by proxy, provided that the power given to the proxy is in writing.
- The chairman of the board of directors shall preside at every general meeting of shareholders.
- If no chairman is present or the chairman has not arrived within 15 minutes after the appointed time of holding the meeting, the shareholders may elect one of their members to be the chairman.
- A general meeting may not transact any business unless shareholders representing at least one-fourth of the company’s capital are present. If the required amount of shareholders is not present within an hour, the meeting shall be dissolved.
Chapter 5: Balance sheet
A balance sheet is effectively a statement of a business’s assets, liabilities, and owner’s equity and is to be prepared as a mandatory requirement for companies in Thailand. Chapter 5 relates to balance sheets when they need to be prepared by etc.
- A balance sheet containing a summary of the company’s assets and liabilities and a profit and loss account must be made at least once every financial year from 1 January to 31 December.
- The balance sheet must be examined by at least one auditor and submitted at the general meeting for approval within four months from the date the balance sheet was finalised.
Chapter 6: Dividend and reserve funds
A dividend is the distribution of corporate profits to eligible shareholders. The Articles of Association typically set out how dividends etc are to be calculated and paid out.
- The distribution of dividends must be made in proportion to the amount paid upon each share unless decided with regard to preference shares.
- The company must place in a reserve fund at the time of distribution of dividends, at least one-twentieth of the profits arising from the company’s business until the reserve fund reaches the one-tenth part of the capital of the company or such higher proportion thereof.
Any other provisions that the parties wish to make enforceable towards third parties such as the right of first refusal and anti-dilution clauses to protect the existing shareholders.
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Frequently asked questions
Can a foreigner open a company in Thailand?
Yes it is possible for a foreigner to open a company in Thailand. There are also options available which allow 100% foreign owned companies as well.
How much does it cost to set up a company in Thailand?
The official fees for registering a company in Thailand are THB 7,500.
How do I start a limited company in Thailand?
- Step 1: Choose and register a company name.
- Step 2: Draft and file the Memorandum of Association.
- Step 3: Call and hold a Statutory Meeting of the shareholders
- Step 4: Register the Company with the Ministry of Commerce.
- Step 5: Register the company for Value-Added Tax (VAT) and Income Tax
Is it good to start a business in Thailand?
Thailand is an attractive option for those wishing to start a business. Thailand has a great infrastructure in place and scheme such as the BOI provide great incentives for companies to take advantage of.
How much money do you need to start a business in Thailand?
Typically, it costs between THB 40,000 to THB 60,000 (excluding VAT and Government fees) to start a business in Thailand.The official fees for registering a company in Thailand are THB 7,500.
How can a foreigner start a small business in Thailand?
Yes, foreigners can start a business in Thailand. However, certain business activities are restricted by the Foreign Business Act and in order for businesses to undertake them they must obtain a Foreign Business Licence/Certificate which can be time consuming and complicated.
What is the biggest problem in Thailand?
The biggest problem facing foreign owned companies is being able to undertake their desired business activity as a 100% foreign owned company. Many business activities are protected by the Foreign Business Act and in order for a company to operate in these protected industries, they will be required to be majority owned by Thai Shareholders (unless a BOI promotion has been obtained).
Why is it hard to do business in Thailand?
The Foreign Business Act limits to the business activities a 100% foreign owned company can undertake. This means Thai Shareholders will need to be sought or a BOI promotion obtained in order for a company to legally operate.
Can I own a company in Thailand?
Yes, foreigners can start a business in Thailand. However, certain business activities are restricted by the Foreign Business Act and in order for businesses to undertake them they must obtain a Foreign Business Licence/Certificate which can be time consuming and complicated.
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